Don't Mess With Taxes

A friend of mine was slow in making his reservations for FinCon13, the personal finance blogger conference here in St. Louis, so he got stuck at not only at another hotel, but also in a smoking room.

Wow! I didn't know those existed any more. I thought lodgings that allowed smoking were a thing of the past.

I remember those smoke haze days of yore well.

I grew up with smokers in my family.

I remember when people lit up cigarettes during restaurant meals, in movie theaters, on planes and yes, in hotels and motels.

I also smoked for years, burning to the filter two and half packs a day before I quit cold turkey as a wedding gift to the hubby.

And although it was waaaaay before my time, the classic scene where Paul Henreid lights two cigarettes and gives one to Bette Davis in "Now, Voyager" is still one of my all-time favorite movie character interactions.

But all those displays of nicotine addiction were well before the deleterious health effects of tobacco were well publicized. And they were definitely before governments discovered what a cash cow tobacco taxes can be.

Uncle Sam's list of tobacco taxes: Like many taxes, the United States' first federal cigarette tax was enacted to help pay for a war. That was in 1864 to help cover the mounting Civil War costs.

The rate stayed relatively low until three years ago, when the federal excise tax on cigarettes went from 39 cents per pack to $1.01. The Alcohol and Tobacco Trade and Tax Bureau also collects excise taxes on larger cigarettes, cigars and a variety of tobacco products.

The most-recent federal cigarette tax increase was to help pay for the Children's Health Insurance Program Reauthorization Act of 2009. President Obama, a smoker who like me quit at the nagging loving urging of his spouse, wants to up the federal cigarette tax another 94 cents to fund an expansion of pre-school education.

State and city cigarette taxes, too: But Uncle Sam isn't the only one who's looking at how cigarette sales could add to the bottom line.

Iowa enacted the country's first state in 1921. By 1969, all 50 states had put a cigarette tax on their books.

And nowadays, big cities with big bills are looking at smokers to help add to operating budgets.

Chicago Mayor Rahm Emmanuel wants to raise the Windy City's cigarette tax by 75 cents a pack. That would make Chicago's combined state and local tax rate $7.42 a pack, the highest in the nation.

Right now, the Second City's cigarette tax fits its nickname. Chicago's current combined state and local tax cigarette tax rate of $6.67 a pack is second only to New York City's $6.86 a pack.

Chicago's possible cigarette tax hike is part of a mini-trend. This summer, Massachusetts' state excise tax on cigarettes went up a dollar to $3.51 per pack.

Dropping health pretense: Lawmakers at all governmental levels used to talk about how the taxes would be good for the states' and nation's health.

More people will quit smoking if the cancer sticks are more expensive, or so the argument goes. That does seem to work when it comes to younger smokers.

But now legislators aren't so disingenuous. They're admitting the so-called sin tax increases are dollar driven.

When Obama released his budget, the document noted that the proposed hike in the federal cigarette excise tax would bring the U.S. Treasury roughly $78 billion over 10 years.

The pull-no-punches Emanuel is expected to use the $10 million that the cigarette tax hike is estimated to produce to pay for a vision and eye-care program now serving 30,000 Chicago Public School students. The mayor also would like to pay for more after-school and summer jobs programs for at-risk youth.

If truth be told, both Obama and his former White House chief of staff don't want people to quit smoking. They want them to light up so their taxes will fund the U.S. and Chicago leaders' projects.

Other tax ramifications: Of course, taxes often have unintended consequences.

Massachusetts lawmakers will no doubt find good uses for the $135 million the state expects to collect over the next 10 months off higher tobacco taxes. But some state officials fear that they'll end up spending added money to fight cigarette smuggling.

Black market cigarettes and their costs, both to the state treasury and in added enforcement efforts, is something that Chicago's home state of Illinois already has had to deal with.

So as with most tax situations, it's a trade-off when a cigarette or other tax is added or increased.

And as in most tax situations, the short-term revenue perspective usually prevails.

You also might find these items of interest:

• Smoking out cigarette smugglers
• The fine art of social policy taxation
• 'Grow your own' means tax savings for cigarette smoking gardener